Federal Treasurer Wayne Swan confirmed earlier projections by economists that a slow down would characterise the first three months of the Australian economy as it starts to absorb the impacts of the twin disasters that ravaged the northern states of the country from December last year through the last week of January.

In a report by The Australian, Swan admitted that the successive damages wrought by the Queensland floods and cyclone Yasi blotted out some $7 billion worth of coal and farm exports, tremendous losses, he said, that could lead to a possible shrink in the economy.

The Australian quoted Swan as saying that "there is no doubt that the natural disasters will thump our economy in the first quarter of this year," and if his forecast becomes a reality in the first quarter of 2011, it would be the first contraction of the economy since the global financial crisis in 2008.

Initial estimates provided by the Australian government pegged the flooding disaster damages to at least $5.6 billion, an amount still expected to balloon once the destructions caused by Yasi have been factored in.

In order to fund the gargantuan task of rehabilitating the areas damaged by the recent disasters, the federal government has proposed a one-off 12-month flood levy to raise $1.8 billion that would be used to fix infrastructures devastated by the floods, which federal authorities said killed 31 people and wrecked some 35,000 homes.

Swan's pronouncement echoed the projections contained in the latest policy statement issued by the Reserve Bank of Australia (RBA) last week, in which the country's central bank flagged a slowdown at the onset of the current year but would be offset by economic recovery to happen in the second half due to rising coal exports and reconstruction expenditures.

Economists noted that the last time Australia saw a contraction was during the last quarter of 2008 though that setback was wholly minimal and the economy eventually withstood the crippling effects of the GFC, with most help coming from the mining sector that has continued meeting the demands of the Asian regions for coal and iron ore shipments.